Why the Rich Pay Lower Taxes and How Can You Do the Same?

Smart business owners are not too busy to save taxes.

Smart business owners are not too busy to save taxes.

The Wealthy are not like us.  They are willing to spend money to make money.  They are willing to pay their tax team a $1 to save $10 in taxes.

This Wealthy (called the “one percent”) create most of the jobs in the U.S. They pay half of all income taxes.  But, at the same time, they usually in a lower tax rate than the rest of us.   For example, Democratic Senator Bernie Sanders is in 15% tax bracket on all his income, including his senator salary.    The topic of this blog, is what’s wrong with your tax planning?

The Wealthy use long-term tax strategies.  These strategies tweak their business structure.     Different parts of a business have different tax laws.  For example, if you have a sales force, they should be in a different corporation than your business.

Seems like a paradox; they are taxed at a lower rate yet they pay almost half of all income taxes.  They also pay 100% of the U.S. death tax the rate is about 45%.

Why do the rich pay fewer taxes?

1.  They plan ahead.  For example,  this October 2016 (as I write this blog) my clients are planning their 2018 taxes and also investments.  They hire tax planners. They spend 10 cents to save a dollar in taxes.   Their tax team creates the best tax strategy. 

2. They do “not follow the pack” comes to tax planning.   They use life insurance, Roth IRA’s  self-directed IRAs (Mitt Romney is famous for his offshore tax planning with his self-directed IRA),  trusts located in Nevada,  a business in Puerto Rico (where the tax rate is 4%), The list goes on and on.  

Remember taxes are paid with after-tax income.

Unfair but true.  If I owe $10,000 of tax and if I am in a 45% marginal tax bracket, I must make $19,000.
Then I pay $9,000 in tax (45% of $19,000).  With my remaining $11,000, I can pay my tax of $10,000.  I get to keep a $1,000.

How can you pay less in taxes?

I hope the above helps.  If you have your own business, look at the character of your income.  Some income may be taxable at a lower rate.  For example, self-employment income has an extra tax at 15%.    If you are involved in the internet or e-commerce, then please check out my book for international tax planning opportunity.

If you are interested in exploring innovative small business tax plans, then I invite you to email me, Brian Dooley, CPA, at [email protected]

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